20th January 2016
Parents putting their name on a mortgage to help their children buy a house are set to be stung by the 3pc stamp duty penalty aimed at buy-to-let landlords.
Changes to stamp duty announced in the Autumn Statement are set to hit untargeted groups of homebuyers, including buyers who need their parents help to get a mortgage. The 2015 Autumn Statement proved to be a problematic one for property investors or those looking to buy a second home, as it was announced that anyone who buys additional residential property will have to pay an extra three percentage points in stamp duty from April. The policy is aimed to relieve the housing shortage, by dis-incentivising buy-to-let landlords and giving first time buyers a better chance of buying. In the past, parents would have acted as guarantors and not become part owners of a property. In this situation the buyer would be off the hook for the extra stamp duty, as it wouldn't count as the parents buying a second home.
However, guarantor mortgages are now few and far between, with many parents instead taking out a joint mortgage with their child to increase the range of mortgage options available.
This is often necessary as even with a large deposit saved, first time buyers often don't have the salary to support a large mortgage. As part of this, most lenders require parents to put their name on the title deeds, which makes them liable to pay the additional stamp duty if they own a home themselves already.
On a £300,000 property that would equate to an extra cost of £9,000. Such an amount would put a serious dent in the buyer’s deposit savings, either reducing the deposit percentage they could put down or prolonging the amount of time they would be forced to save for. However, those who simply want to give their children money towards a house will not invoke the extra stamp duty penalty. Effectively that means wealthy parents with spare cash will still be free to help their children on to the property ladder, whereas those with less cash wealth who already have limited options will face an additional cost.